On September 20, the Federal Housing Finance Agency (FHFA) released a notice it sent to the Federal Register that proposes increasing the guarantee fees that Fannie Mae and Freddie Mac charge on single-family mortgages issued in certain states (Connecticut, Florida, Illinois, New Jersey, and New York) where foreclosure-related costs significantly exceed the national average. The adjustment in fees is intended to ensure that Fannie Mae and Freddie Mac’s guarantee fees are commensurate with the risk a loan poses.
To estimate how much a default costs Fannie and Freddie in each state, FHFA considered the average amount of days it takes the two firms to foreclose on a home after it defaults; the duration of state-imposed redemption periods after a foreclosure sale; and the property taxes, legal fees, and other operational expenses that must be paid in the interim. Guarantee fees would be adjusted for loans issued in those states where such costs are estimated to be at or above one and one half standard deviations from the national average. Illinois, which is between one and one half and two standard deviations from the mean, would have an upfront fee of 15 basis points. The states between two and three standard deviations from the mean, Florida, Connecticut, and New Jersey, would have an upfront fee of 20 basis points. New York, which is more than 3 standard deviations above the mean, would have an upfront fee of 30 basis points.
FHFA said that it will periodically review state-level guarantee fees and adjust them according to new data. The agency also indicated that, going forward, it might consider additional factors in determining state-level guarantee fees, such as state laws regarding the disposition of real estate owned (REO) properties.
FHFA will be accepting public comments on this proposal for 60 days after it is published in the Federal Register. NCSHA plans to submit comments on FHFA’s proposal. Please send any comments or concerns on it to NCSHA’s Greg Zagorski as NCSHA considers what to include in its comments.